Several times a year our securities
regulators/ CSA routinely promote the importance of checking to see if your
advice giver is registered. http://aretheyregistered.ca/ We believe this can actually be a disservice
to investors, giving them a false sense of security that if their person is listed
that they can then breathe a sigh of relief that all is well. The CSA says
“Although most investment
advisers are honest and work in your best interest, you still need to carefully
choose who you deal with. Before investing follow these simple steps: …” This
is not accurate- there is NO regulatory requirement that “advisors” act in your
best interests .In fact, the industry works on the basis of suitability which
is a very low standard.
ANOTHER EXAMPLE "To
prevent fraud [emphasis ours], use
the National
Registration Search to check if your dealer or
adviser is registered. Such registered dealers and “advisors” can cause and
have caused a lot more damage through mis-selling and overcharging ( and
sometimes fraud) than an outright fraudster and there are many more of them.
Still, it is important to ensure your advisor and their dealer is registered
because if they are not, this is a clear red flag.
Perhaps most importantly of all ,the CSA says “The CSA furnishes all data and
information products on this site with the understanding that neither the CSA,
nor its contractors and employees, makes any warranty, express or implied, or
assumes any legal liability or responsibility for the accuracy, completeness,
or usefulness of any information on the site.” (http://www.securities-administrators.ca/legal.aspx ) Now isn’t that reassuring? This is
precisely the kind of fine-print liability-dodging the regulators rightly give
the industry a hard time for. An investigative report by advisor.ca found that
as of May 2016, there were 51 instances of MFDA or IIROC reps whose full disciplinary
records from 2013 to 2015 do not appear on their CSA profile pages (http://www.advisor.ca/news/industry-news/how-to-stop-banned-reps-from-selling-insurance-207501 ).
Information
regarding registrants who were registered prior to September 2009 is not
available on National Registration Search (NRS). You will need to access this
information from your local regulator. This historical information is not
available through NRS as the system was updated to summarize registration
categories across jurisdictions (precipitated by September 2009 Registration
Reform).
The current
system is very complicated and necessitates the search of several databases. It
also requires the consumer to know the registered name of the firm, although
this may not be the business name the investor knows. It certainly can’t be
done in 10 seconds as the CSA implies.
The CSA website is difficult to
navigate to get any relevant information like registration category. If by
chance an investor does stumble across the registration category unless they
pursue it further they would have no idea what it actually means. But if they
do, it makes it clear what a dealing representative really is – A Salesperson (http://www.securities-administrators.ca/uploadedFiles/General/pdfs/UnderstandingRegistration_EN.pdf ) So ignore all the fancy titles,
this descriptor tells it all.
Another issue involves names. Unless you use the exact name in NRD, you may get a No name found result. Duplicate names are another challenge. They can arise when researching SRO disciplinary actions in the CSA and insurance databases. While the uncertainty this causes could be remedied by cross-checking other identifiers, lingering ambiguity in some cases can force you to exclude the data point altogether. Financial consumers working with someone registered across multiple jurisdictions could have a hard time doing research on their prospective advisor. Investor advocates have proposed a national identification number for each registered or licensed person in the financial industry that will be the same across each regulator. Maybe one day that will happen.
The CSA’s Check Registration site only deals
with securities registrants, does not include criminal sanctions as part of the
person’s disciplinary history, and appears not to be consistent with respect to
terms and conditions (for example, historical terms and conditions that are
imposed as a result of a Director’s decision or a Commission order in Ontario
are included in the database, but you have to contact the British Columbia
Securities Commission for this information in BC).
This is a major problem when it comes to what investors are relying on
for information about their financial “advisors”. The CSA suggests the registration
reports as being complete and helpful to investors but, in reality, these often
omit information about “advisors” that is highly relevant and necessary for
investors to make informed decisions about who they may want to engage. In general, “advisor” profiles are
thin on information that would be relevant to a consumer doing due diligence.
For instance, the professional qualifications (e.g. Certified Financial Planner)
are not provided. You can validate these by contacting the applicable
professional society. If the individual has received a warning or caution
letter, it will not show up on the system.
No
information is provided that a registrant may also be registered as a life
insurance agent with an insurance industry regulator. Securities regulators
should consider including a disclaimer on their lookup pages indicating registered
persons may have multiple registrations, and that consumers should consider searching
the applicable insurance database, among others, for disciplinary actions.
We do not
believe that the average investor is sufficiently familiar with registration categories
to know whether a firm or individual is selling investments that they are
qualified to sell or provide advice on once they are aware of the person’s
registration category.
The advantages of dealing with
a registered dealer is that they are under a regulatory regime, participants
must meet minimum qualifications and the dealer is responsible for the
recommendations made to you. You also have access to the Ombudsman for Banking
Services and Investments in the event of a complaint (although they unfortunately
cannot make binding recommendations) that can’t be settled with the dealer.
The major issue with a
non-registrant is that they are likely selling products with no prospectus that
are either high risk or outright fraudulent swamp land. When things go wrong
(and they will) the person will be long gone and you will be unlikely to get
your money back. The non-registered firm and/or individual may have
administrative sanctions against them, but that won’t result in money back to
you, the investor.
Unless an investor is employed in,
or otherwise familiar with the securities industry, the chances are not high
that the CSA website Are They Registered
will provide them sufficient relevant meaningful information necessary to
make informed decisions about who they may want to engage. There is nothing
wrong with getting people to check the registration as one of the steps,
but there also needs to be a robust warning about the limitations of the
registration information with respect to the details provided.
We strongly recommend you read a
companion article ABOVE the LAW-
Checking an advisor’s registration available at http://sipa.ca/library/SIPAsubmissions/500_SIPA_REPORT_REGISTRATION-Above-the-Law_201611.pdf
